Banks Banning Tenants on Housing Benefit

Posted on May 10, 2017.

It’s true that the vast majority of properties on our books don’t accept tenant’s who are in receipt of housing benefit. We’re often asked why this is the case, hearing time and again from prospective viewers that their being eligible for housing benefit does not mean they are unable to pay the rent in full and on time.

It’s a sad truth that it’s frequently not a landlord’s personal choice, but a stipulation in their mortgage that prohibits it. Landlord’s also typically find that landlord insurance premiums are also higher if they let to tenants on benefits.

For those whom it is a choice, I wonder if they would reconsider if the rent was paid directly to the landlord rather than to the tenant; something that is becoming more and more rare with the introduction of Universal Credit?

According to research, two-thirds of the largest lenders of buy-to-let mortgages forbid landlords to rent to tenants receiving housing benefit.

Banks representing around 90% of the buy-to-let market have been accused of discriminating against claimants, many of whom are low-paid workers, entitled to claim housing benefit.

The Residential Landlords Association (RLA) has urged the next government to carry out an urgent review of the practice.

Chairman Alan Ward said: “Discrimination against tenants receiving benefits is not driven by landlords but by the banking system. If the private rented sector is to house more people then barriers to landlords making fair decisions over who they rent to must be removed.”

Ward said political parties need to “trust tenants to know what is best for them” and allow them to choose how to pay their rent.

He proposed a system where a tenant’s Universal Credit and benefit payments can be made directly to their landlord, as long as the tenant does not fall into arrears.

Analysis of the market commissioned by the RLA assessed 58 lenders’ policies for buy-to-let mortgages on a two-bedroom flat where the tenants would be claimants. It found that two-thirds do not allow properties to be rented to those in receipt of housing benefit.

Ten of the banks allowed properties to be rented out to those receiving housing benefit, however one stipulated they cannot be rented to “vulnerable tenants”.

Nine indicated that they were prepared to “consider” housing benefit claimants and one said it does not have a criteria for claimants.

Doug Hall, director of the mortgage distributor 3mc, which carried out the research, said: “Some of the reasons given for not lending to those renting to claimants include concerns about rent not being paid and historic data which calculates the risk of tenants falling into arrears or facing repossession.”

It would be interesting to understand more the contradication of lenders who prohibit letting to tenants who receive housing benefit, and how this does not amount to discrimination against disabled tenants who receive housing benefit as a result of their disability.

What do you think? Does your lender allow you to let to tenants on benefits? Would you let to a tenant on benefits if you had the choice?